Buffett is the closest we have to a clean-up hitter in the US
economy. He would chuckle at the description, but there is more
than madness to it. Berkshire Hathaway, the company he built with
his partner Charlie Munder, has defied palpitations of the US
equity markets for reasons that became clearer on February 12,
who warned years ago that securitized debt represented "weapons
of mass financial destruction", is offering to reinsure US$800
billion underwritten by three insurers (MBIA, the Ambac Financial
Group, and FGIC) of municipal debt that undergirds the American
empire. The New York Times noted February 13, 2008 on A1, "the
financial burdens of three insurance companies have become a threat
to the financial system."
reacted positively to Buffett's appearance at the plate, more
like, deus ex machina. I take a more nuanced view.
a couple of ways to view Buffett's move, which carefully excluded
debt related to the mortgage crisis.
letters to shareholders, he comes across wise, prudent, and an
optimist. Buffett believes in America, even if profits in his
portfolio increasingly flow from international markets. In this
light, his offer is a vote of confidence that there is significant
opportunity for Berkshire Hathaway shareholders in the credit
Buffett, who warned years ago that securitized debt represented
"weapons of mass financial destruction", is offering to
reinsure US$800 billion underwritten by three insurers (MBIA,
the Ambac Financial Group, and FGIC) of municipal debt that
undergirds the American empire.
the other hand, Buffett may be more worried than he has ever been
in his investing life.
He is not
given to the blank-check, nonsensical patter of top federal officials
from President Bush to Hank Paulson and Ben Bernanke: that the
economy is essentially sound, that the credit crisis is "contained"
have decided that the threat from frozen credit markets to Berkshire
Hathaway shareholders is so severe that he had to step to the
I have no
evidence what Mr. Buffett is thinking. But from the financial
news, there are certain inescapable conclusions to draw. US equity
markets have been reflecting general public discontent with government
mixed with insecurity about the economy in a way that increasingly
resembles mass bipolar disorder. Indexes fluctuate manically yet
remain relatively high despite an avalanche of bad news - for
instance, the recent news that blue-chip AIG risk analysts failed
get much worse than that. Or, can it?
citizen Buffett is less a clean-up hitter than like an agile free
safety, the last defender on a football team worn out by steroid
doubt Mr. Buffett sees what I see from Miami, the epicenter
of the housing bust... It hasn't made me rich, but it has
made me wise enough to know there is hell to pay for the
cheating, lying and demagoguery that passes for stewardship
of the economy.
crisis is carrying the ball, running to the end zone that NYU
economist Nouriel Roubini calls "systemic financial risk".
era has never experienced a time when markets for municipal mortgage
debt seize up. If the insurance companies that underwrite protections
for that debt can no longer meet their capital requirements, or
they can't pay out claims, if municipalities can't borrow to fund
operations and deficits burgeoning from the precipitous decline
of real estate markets, the US economy will undergo a contraction.
A contraction as catastrophic, perhaps, as the one that followed
Calvin Coolidge and his somber assertion that "the business of
America is business."
If Mr. Buffettt
sees opportunity in backing $800 billion in debt, who am I to
say different? We are at different pay grades. But even from the
perch he keeps purposefully modest, I doubt Mr. Buffett sees what
I see from Miami, the epicenter of the housing bust.
made me rich, but it has made me wise enough to know there is
hell to pay for the cheating, lying and demagoguery that passes
for stewardship of the economy, Warren Buffettt or not. Hundreds
of billions are vanishing in a crisis triggered by the hubris
and arrogance of the Growth Machine, US consumers and voters who
owe more than they can pay back, because they couldn't have cared
less and no one was around to tell them, an ounce of prevention
is worth a pound of cure.
Alan Farago of Coral Gables, who writes about the environment
and the politics of South Florida, can be reached at [email protected].
Visit his website at alanfarago.wordpress.com.